Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2)

[2018] NSWCA 266

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266

Hearing dates:

On the papers

Decision date:

12 November 2018

Before:

McColl JA at [1];
Macfarlan JA at [85];
Leeming JA at [86]

Decision:

(1)   Note that judgment will be entered for Cawarrah Holdings Pty Ltd in the sum of $36,631.16, plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017 upon the parties providing to the court the interest figure and therefore the total judgment amount.
(2)   Note that judgment will be entered for Crusader Pty Ltd (ACN 094 092 734) in the sum of $79,704.98 plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017 upon the parties providing to the court the interest figure and therefore the total judgment amount.
(3)   Direct the parties to provide the figures referred to in notes (1) and (2) to the court within seven days.
(4)   Order Cellarit Pty Ltd to pay Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734) their costs of the trial.
(5)   Order Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734) to pay 80% of Cellarit Pty Ltd’s costs of the appeal and cross-appeal incurred on or before 28 September 2018.
(6)   Dismiss Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734)’s motion filed on 12 October 2018.
(7)   Direct that the sum of $45,000, paid into court on 20 December 2017 pursuant to the order of the Registrar of the Court of Appeal dated 27 November 2017, be paid out to Cellarit Pty Ltd.

Catchwords:

COSTS – costs of trial – where trial judge entered verdict and judgment for plaintiffs – where appeal and cross-appeal allowed – where damages payable by defendant reduced by approximately 60% – where general rule that costs follow the event – where multiple issues raised at trial – whether “late amendment” principle applied – whether defendant succeeded on dominant issue on appeal – whether plaintiffs engaged in disentitling conduct

 

COSTS – costs of appeal – where appellant succeeded on main issue argued on appeal – where respondent given leave at conclusion of appeal hearing to file cross-appeal – where substantial post-hearing submissions – where damages payable by appellant reduced by approximately 60% – where appeal and cross-appeal allowed – whether costs of appeal and cross-appeal follow the event

 

PROCEDURE – payment into court – where moneys paid into court as security for costs of appeal – whether plaintiffs entitled to “stop order” pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 41.16(2)(b) – whether moneys paid “as security for costs” can be paid out for a different purpose

WORDS AND PHRASES – “event” – Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Legislation Cited:

Civil Procedure Act 2005 (NSW)
District Court Act 1973 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873
Baker v Towle (2008) 39 Fam LR 323; [2008] NSWCA 73
Beoco Ltd v Alfa Laval Co Ltd [1993] EWCA Civ 22; [1995] QB 137
Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304
Bostock v Ramsey Urban District Council [1900] 2 QB 616
Commissioner of Australian Federal Police v Razzi (No 2) (1991) 30 FCR 64 at 69; (1991) 101 ALR 425
Commonwealth of Australia v Gretton [2008] NSWCA 117
David Alan Thomson & Ors v Golden Destiny Investments Pty Limited & Ors (No 2) [2015] NSWSC 1929
Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261
Donald Campbell & Co Ltd v Pollak [1927] AC 732
Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264; [1991] HCA 51
James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296
JKB Holdings Pty Limited v De La Vega [2013] NSWSC 501
Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft mbH (formerly CGL Handelgesellschaft mbH) [1993] 2 Lloyd’s Rep 1
Keddie v Foxall [1955] VLR 320
King & Co v Gillard & Co [1905] 2 Ch 7
Lollis v Loulatzis (No 2) [2008] VSC 35
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171
Moseley v AB (No 2) [2017] NSWSC 1812
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425
Murrihy v Radio 2UE Sydney Pty Ltd [2000] NSWSC 318
Nicholls v Michael Wilson & Partners Ltd (No 2) [2013] NSWCA 141
NSW v The Commonwealth [No 3] (1932) 46 CLR 246
Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11
Pilmer and Others v HIH Casualty & General Insurance Ltd And Others (No 2) (2004) 90 SASR 465; (2004) 212 ALR 636
Re ANZ Banking Group Ltd; Funds in Court [2014] NSWSC 1076
Roads and Traffic Authority v McGregor (No 2) [2005] NSWCA 453
State of New South Wales v Abed (No 2) [2015] NSWCA 47
Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 (2011) 288 ALR 385
Turkmani v Visvalingam (No 2) [2009] NSWCA 279
Vernon v Perry [1962] VR 223
Vero Insurance Ltd v Australian Prestressing Services Pty Ltd (No 2) [2014] NSWCA 8
Waterman v Gerling (Costs) [2005] NSWSC 1111
Waters v P C Henderson (Aust) Pty Ltd (1994) 254 ALR 328

Category:

Costs

Parties:

Cellarit Pty Ltd (Appellant)
Cawarrah Holdings Pty Ltd (First Respondent)
Crusader Pty Ltd (Second Respondent)

Representation:

Counsel:
N J Kidd SC (Appellant)
S Robertson with R E Raffell (Respondents)

  Solicitors:
Banki Haddock Fiora (Appellant)
Bayside Solicitors (Respondents)

File Number(s):

2017/313665

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

District Court of New South Wales

Jurisdiction:

Sydney Civil Jurisdiction

Citation:

Not published on Caselaw

Date of Decision:

29 September 2017

Before:

Gibb DCJ

File Number(s):

2014/377541

Judgment

1. McCOLL JA: On 28 September 2018, the court allowed an appeal by Cellarit Pty Ltd (Cellarit) and set aside the orders of the primary judge that Cellarit pay $102,143.87 and $223,564.32 by way of damages to Cawarrah Holdings Pty Ltd (Cawarrah) to Crusader Pty Ltd (as trustee for the Storch Superannuation Fund) (Crusader) respectively, a total of $325,708.19. [1] In addition, and subject to what appears below, the Court entered verdict and judgment for Cawarrah in the sum of $36,631.16, plus pre-judgment interest, and for Crusader in the sum of $79,704.98, plus pre-judgment interest. This represented approximately a 60% reduction in Cellarit’s favour from the primary judgment.

   1. Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd [2018] NSWCA 213 (principal judgment).

2. In addition, the court made the following orders:[2]

   2. At [298].

“(3) Grant the respondents an extension of time in which to file a notice of cross-appeal.

(4) Direct the respondents to file and serve a notice of cross-appeal within 7 days of judgment which complies with UCPR 51.18 and contains grounds seeking findings of breach of contract in relation both to the reversals issue and the overcharging claim.

(5) Subject to compliance with order (4), enter verdict and judgment for Cawarrah Holdings Pty Ltd in the sum of $36,631.16, plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017.

(6) Subject to compliance with order (4), enter verdict and judgment for Crusader Pty Ltd (ACN 094 092 734) in the sum of $79,704.98 plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017.

(7) Costs reserved.

(8) Direct Cellarit Pty Ltd to file and serve within 7 days of the delivery of these reasons, submissions as to the orders for which it contends in relation to the costs of the trial, of the appeal and of the disposition of the monies paid into Court on account of its security for costs such submissions not to exceed 5 pages.

(9) Direct Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734) to file and serve within 14 days of the delivery of these reasons submissions as to the orders for which they contend in relation to the costs of the trial, of the appeal and of the disposition of the monies paid into Court on account of its security for costs such submissions not to exceed 5 pages.

(10) Direct Cellarit Pty Ltd to file and serve within 7 days of the receipt of the respondents’ submissions referred to in paragraph (9) above any reply to those submissions such submissions not to exceed 3 pages.”

3. These reasons address the parties’ submissions made pursuant to orders (8) – (10). They should be read with the principal judgment and assume familiarity with the facts there set out and with expressions defined in it.

Notice of cross-appeal

4. On 4 October 2018, Cawarrah filed a notice of cross-appeal pursuant to s 127 of the District Court Act 1973 (NSW) and orders (3) and (4) of the principal judgment, pursuant to which they cross-appealed from the primary judge’s orders insofar as they pertained to the “reversals claim” and the “overcharging claim”. [3]

   3.    Principal judgment at [260] – [274] and [275] – [291].

5. Cellarit did not object to the form of the notice of cross-appeal and it should be held, accordingly, that Cawarrah has complied with orders (5) and (6) and is entitled to judgment on compliance with the matters referred to in notes (1) and (2) in [84].

6. By their notice of cross-appeal, Cawarrah sought an order that Cellarit pay their costs of the trial and the costs of the cross-appeal.

Consideration

7. Section 98 of the Civil Procedure Act2005 (NSW) confers a wide discretion on the court with respect to costs. The “general rule” is that court costs follow the event unless the court makes “some other order” pursuant to the discretion conferred by Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1.

8. As Beazley JA explained in Baker v Towle,[4] in most litigation, UCPR r 42.1 “operates in a straightforward way, ‘the event’ being readily identifiable as a judgment for the plaintiff or the defendant on the claim. In that sense, ‘the event’ to which the rule refers is the result of the proceedings, so that the party who succeeds on the claim before the court is awarded costs, unless the court, pursuant to the discretion conferred by r 42.1, makes ‘some other order’”.

   4. (2008) 39 Fam LR 323; [2008] NSWCA 73 at [11] (Mathews AJA agreeing).

9. Underlying both the general rule that costs follow the event, and qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs. [5]

   5. Turkmani v Visvalingam (No 2) [2009] NSWCA 279 at [13] per Hodgson JA (Beazley and McColl JJA agreeing), citing Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121] per Hodgson JA (Mason P agreeing; Beazley JA substantially agreeing).

10. Where there are multiple issues in a case the court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. This recognises the proposition that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case. [6]

    6. Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 (Dodds Family Investments) at 271 per Gummow, French and Hill JJ.

11. However there is a tension between that proposition and the proposition that, “[i]f parties come to realise that they will not necessarily recover the whole of their costs, even though they have unsuccessfully raised a discrete issue, they are likely better to consider whether the raising of that issue is a justifiable course to take.”[7]

    7. Commissioner of Australian Federal Police v Razzi (No 2) (1991) 30 FCR 64 at 69; (1991) 101 ALR 425 at 430 per Wilcox J, referred to in Dodds Family Investments at 272.

12. Further, even where there are multiple issues, unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the particular issues on which it was successful and those on which it failed. [8]

    8. Waters v P C Henderson (Aust) Pty Ltd (1994) 254 ALR 328 at 330 – 331 per Mahoney JA; State of New South Wales v Abed (No 2) [2015] NSWCA 47 (SNSW v Abed) at [31] per Gleeson JA (Bathurst CJ and Macfarlan JA agreeing) referring to Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 (Bostik) at [38] per Beazley, Ipp and Basten JJA.

13. However, a court can mould a costs order to take account of the partial success of the party against whom orders have been made at trial insofar as that party identifies particular issues or groups of issues on which it succeeded at the trial. [9] This requires consideration of whether there were “clearly discrete issues for determination” or, rather, whether “all issues are inseparable, or at least sufficiently linked, with respect to the overall disposition of a particular matter”. [10] A separable issue can relate to “any disputed question of fact or law” before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter. [11]

    9. Nicholls v Michael Wilson & Partners Ltd (No 2) [2013] NSWCA 141 at [13] per Sackville AJA (Meagher and Barrett JJA agreeing).

    10. James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 (James) at [34] per Beazley, Tobias and McColl JJA.

    11. Ibid.

14. Where there is a mixed outcome in proceedings, the question of apportionment of costs between issues on which the party who has overall been successful, and those on which that party has failed, is very much a matter of discretion, and mathematical precision is illusory. [12]

    12. Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 (2011) 288 ALR 385 at [84] per Campbell JA (Macfarlan and Young JJA agreeing), referring to James at [36]; Dodds Family Investments at 272; Roads and Traffic Authority v McGregor (No 2) [2005] NSWCA 453 at [19]; Bostik at [38]; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [22].

15. Before I consider the particular issues, it is necessary to recall that the litigation arose out of a long commercial relationship between the parties. At trial, a number of matters were in issue concerning that relationship: the fixed-term claim, the 2009 Agreement, the 2014 variation, estoppel and the reversals and overcharging claims.

16. On the findings of this court, Cawarrah succeeded at trial in establishing that the 15% commission was a term of the 2006 contract, and in recovering the amounts of the reversals and overcharging claims. It also retained the benefit of the primary judge’s unchallenged findings that Cellarit failed to establish the 2009 Agreement, the 2014 variation and its estoppel case. However, they failed to establish that the 15% commission term governed the parties’ relationship on and from 1 October 2008. Rather, the court held that the primary judge erred in failing to find that their conduct in trading with Cellarit over a period of 73/4 years after the commission rates were increased, on and from that date demonstrated their assent to the variation of that term.

17. On appeal, Cellarit successfully challenged the primary judge’s finding on the variation case, but failed in its challenge to the finding that the 15% commission was a term of the 2006 contract. Cawarrah also succeeded on two other claims each of which concerned the terms of the 2006 contract. Cellarit refused prior to trial to compromise even the reversals claim and conducted its defence of the proceedings, in part, on the basis that it had been entitled to effect unilateral adjustments to Cawarrah and Crusader’s accounts with it, including, apparently the overcharging identified in the Schedule.

18. These issues form the background to the consideration of the costs submissions.

Costs of the trial

Cellarit’s submissions

19. Cellarit submitted the court:

1. should order Cawarrah pay Cellarit’s costs of the trial incurred prior to 1 September 2017 and that Cellarit pay Cawarrah’s costs of the trial incurred from 1 September 2017;

2. alternatively should make no order as to costs of the trial, with the intent that each party bear its own costs of the proceedings.

20. Cellarit relies upon three grounds in support of its submissions above.

21. First, Cellarit argues that because Cawarrah succeeded on alternative claims first pleaded in their reply without which their action would have failed, the normal order that costs should follow the event should not apply. [13] Cellarit also argues that Cawarrah’s conduct in raising the reversals and overcharging claims belatedly constitutes conduct disentitling it from being the beneficiary of a costs order. Cellarit submits that there are no special reasons why the well-established principle that a defendant is entitled to the costs of the action up to the date of the pleading introducing a new claim should not apply.

    13.    See principal judgment at [28] – [29].

22. Secondly, Cellarit argues Cawarrah failed on appeal on a clearly “dominant group of issues” in the proceedings below – namely, their fixed-term case. [14] Cellarit contends that the issue of the rate and term of the commission was a clearly dominant issue because it was the sole claim made by Cawarrah during the trial; it sought substantially larger damages than the alternative reversal and overcharging claims and it was the only claim dealt with in the primary judgment.

    14. Ibid at [14].

23. Thirdly, Cellarit submits that, where a plaintiff has pursued or persisted with a claim which had no merit, such conduct will constitute a consideration relevant to the ordering of costs even in circumstances where that party is generally successful. Here, Cellarit submits, Cawarrah’s claim that Cellarit breached a contract which throughout the 7¾ year period from October 2008 had a fixed commission term of 15% was unreasonably pursued and persisted with by the plaintiffs because the lengthy and voluminous period of ongoing trading during which the commission always exceeded 15% amounted to a clear case of variation of the 15% commission term.

24. Cellarit relies on the court’s finding that the term of the contract that the defendant would charge 15% commission was varied on and from 1 October 2008. [15] It follows, Cellarit submits, that the claim made in the statement of claim failed in its entirety. At all times from when the proceedings were commenced in December 2014 until the trial commenced on 30 August 2017, Cellarit submits Cawarrah’s claims were based exclusively on a cause of action which failed.

    15. At [236] – [245]; [299].

Cawarrah’s submissions

25. Cawarrah submits that the costs of the trial should follow the event, that each party should bear its costs of the appeal and the moneys in court should be paid out to them by way of partial discharge of the judgments entered by this court on 28 September 2018.

26. Cawarrah submits that the ultimate result of the appeal and cross-appeal is that they have vindicated their position that Cellarit wrongly failed to remit to them the amounts they have recovered in the reversals and overcharging claims. They argue that the ultimate “event” of the trial was therefore in their favour with the result that they should be awarded the costs of the trial “unless it appears to the court that some other order should be made as to the whole or any part of the costs”: UCPR r 42.1.

27. Cawarrah submits that the court should not depart from UCPR r 42.1 because without prejudice communications before trial demonstrate that Cellarit steadfastly refused to offer to make any significant payment in response to their claims. In particular, Cellarit did not offer to repay the reversals. Rather, Cellarit’s last “offer of compromise” (a reference to a letter dated 28 November 2016 which did not conform or purport to conform to the requirements of an offer of compromise: see UCPR r 20.26) was to reflect apparently that the parties “walk away” from the proceedings and bear their own costs.

25. In contrast, Cawarrah included as Attachment 2 to their written submissions a without prejudice save as to costs letter they sent on 1 August 2017 to Cellarit. They contend that that letter, to which Cellarit did not respond, demonstrates they appreciated that the eventual result of their claim may be along the line of what eventually occurred in this court. In particular, they point to the argument in the letter that, “regardless of the view the court takes on the overcharged commissions component of [the] claim, [Cawarrah] are likely to succeed on the reversed discounts component”.

26. Cawarrah highlights my observation in the principal judgment[16] that “[t]he reversals issue was clearly agitated both on the pleadings and in the evidence at trial”. They argue that the “reversals issue” was an important issue at trial on all parties’ cases and cannot be dismissed as a mere afterthought raised on the third day of the trial.

    16. At [260].

27. Further, Cawarrah submits that Cellarit failed at trial on the 2009 Agreement case, [17] a finding which it did not appeal. Cawarrah argues that that issue occupied a significant part of the hearing (including before the third day) as well as a substantial portion of the trial preparation.

    17.    Principal judgment at [19]ff.

28. Cawarrah submits in all the circumstances the fairest approach is that costs should follow the event. Alternatively, they contend that Cellarit should be required to pay a specified portion of their costs below should a discount be ordered to reflect the fact they were entitled to a lesser amount than the whole amount that they claimed.

29. Cawarrah submits that, were this Court to accept Cellarit’s submissions on costs, as a practical matter the result would defeat the conclusion reached by this court, namely that Cellarit was not entitled to effect the “reversals” and had overcharged Cawarrah independently of the fixed-term case.

30. Cellarit contends in reply that Cawarrah’s submission that the “reversals issue” was an important issue at trial overlooks the fact that, prior to its commencement and the filing of the reply on the third day of the hearing, no claim had been made by Cawarrah that they were entitled to recover the “reversals” on any basis other than breach of the 15% commission term.

31. Cellarit submits that a rejection of its evidence concerning whether the 2009 Agreement in May and June 2014 would not have entitled Cawarrah to recover the “reversals”. Rather, it was necessary that they pleaded the reversals claim raised in the reply.

32. Cellarit submits that the offers of compromise to which Cawarrah referred needed to be considered in light of the fact that, at the time they were made, Cawarrah had only pleaded the fixed-term claim which has been wholly unsuccessful. In that light, Cellarit argues its offers were plainly more than reasonable.

33. Cellarit accepts they ran alternative defences, but argues that such defences were not clearly dominant or separable.

Consideration

37. Cellarit’s submissions recognise the application of the ordinary rule that a plaintiff who obtains judgment at trial for a monetary sum will be entitled to an order that the defendant pay his or her costs, notwithstanding that the plaintiff might not have recovered the whole of the amount he or she claimed. [18] That is because such success constitutes the “event” for the purposes of UCPR r 42.1.

    18. SNSW v Abed at [31] per Gleeson JA (Bathurst CJ and Macfarlan JA agreeing), referring to Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425 at [27] per Macfarlan JA (Meagher and Barrett JJA agreeing).

38. Prima facie, that rule applies because the court held that the primary judge should have found in Cawarrah’s favour on both the reversals and overcharging claims and entered judgment in their favour in both respects.

39. It is incumbent on the defendant to establish a basis for departing from that rule. [19] Cellarit seeks to avoid that outcome in a number of ways. First, by relying on the late amendment principle. Secondly, by arguing that it succeeded on a dominant issue. Thirdly, by contending Cawarrah has been guilty of disentitling conduct.

    19. Waterman v Gerling (Costs) [2005] NSWSC 1111 (Waterman) at [10] per Brereton J.

Whether late amendment principle applies

40. As a general rule, where a plaintiff makes a late amendment which substantially alters the case the defendant has to meet and without which the action will fail, the defendant is entitled to the costs of the action down to the date of the amendment. [20] The general rule may not apply, for example, where even if the amendment had been made earlier, the action would have been vigorously resisted. [21]

    20. Beoco Ltd v Alfa Laval Co Ltd [1993] EWCA Civ 22; [1995] QB 137 (Beoco Ltd) at 154 per Stuart-Smith LJ, with whom Balcombe and Peter Gibson LJJ agreed; Vero Insurance Ltd v Australian Prestressing Services Pty Ltd (No 2) [2014] NSWCA 8 at [7].

    21. Beoco Ltd at 154, referring to Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft mbH (formerly CGL Handelgesellschaft mbH) [1993] 2 Lloyd’s Rep 1 at 9.

41. In my view, the general rule does not apply in the present case. It is apparent from the correspondence between the parties prior to the trial that Cawarrah disputed Cellarit’s entitlement to make the reversals. Their entitlement to damages reflecting the quantum of the reversals was referred to in the Schedule.

42. At trial, counsel for Cawarrah described the reversals claim as still entitling Cawarrah to a verdict, even if Cellarit were successful on the fixed-term claim. The reversals claim was pleaded because during the debate about the issues which took place at the commencement of the hearing, the primary judge said it should be raised formally by way of reply. No new affidavits were filed after the reply was filed. The case proceeded on the evidence already prepared. The reversals issue was only a small part of the larger issue which concerned the fixed-term case.

43. The reversals issue did not take Cellarit by surprise. It had already pleaded its entitlement to effect the reversals in its defence. Mr Witt’s first affidavit dated 12 August 2016 dealt with the circumstances in which the reversals were effected. [22]

    22.    See generally principal judgment at [84] – [91].

44. In this court, Cawarrah accepted that it would have been more appropriate to raise the reversals issue in its statement of claim rather than by way of reply.

45. In addition to the reversals issue, the reply pleaded the overcharging claim. This was also a matter identified in the Schedule and said to be a fallback, though in truth, like the reversals issue it was an additional claim which ought to have been included in Cawarrah’s statement of claim

46. However, counsel for Cellarit informed the primary judge that nothing in the reply Cawarrah sought leave to file in court on 1 September 2017 took him by surprise.

47. More importantly, neither the reversals nor the overcharging claims were pleaded as matters without which Cawarrah’s action would fail. Rather, Cawarrah’s principal claim continued to be their fixed-term case. The reversals claim was already “in play” to the extent that Cellarit agitated it in its defence. In contrast, in Murrihy v Radio 2UE Sydney Pty Ltd,[23] the plaintiff succeeded in defamation proceedings on the basis of imputations which he was given leave to rely upon by amendment to his statement of claim on the first day of the trial. Significantly, he could not otherwise have succeeded on the statement of claim as pleaded before the amendment was allowed. [24]

    23. [2000] NSWSC 318.

    24. Ibid at [8] per Studdert J.

48. Nor could the overcharging claim be said to have “substantially” altered the case Cellarit had to meet. In total it was for the sum of $25,669.24 divided between Cawarrah and Crusader. Further, as explained in the principal judgment, the overcharging claim barely rated a mention throughout the trial. [25] As I have said, Cellarit’s counsel at trial said he was not taken by surprise by the issues raised in the reply, a concession which presumably included the pleading of the overcharging claim, which was also referred to in Cawarrah’s amended outline of oral closing submissions.

    25. See [276].

49. Finally, it is apparent from the pre-trial correspondence Cawarrah relies upon that even if the reversals and overcharging claims had been pleaded earlier, Cellarit would still have vigorously resisted Cawarrah’s claim.

Dominant issue

50. In my view, while clearly the important issue from Cawarrah’s perspective in pure mathematical terms having regard to its quantum, the variation case cannot be said to have been the dominant issue at trial. As I have explained, there were multiple issues raised by the defence, only one of which succeeded. Pure mathematics cannot govern the exercise of the UCPR r 42.1 discretion. I would not identify the outcome of the variation case as warranting a departure from the general rule that costs follow the event.

Whether Cawarrah engaged in disentitling conduct

51. Finally, Cellarit relies on the proposition that a successful plaintiff may be deprived of his costs, or, at any rate, made to pay the costs of the other side, if the plaintiff has been guilty of some sort of misconduct (disentitling conduct). [26]

    26. Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 at 874 per Devlin J.

52. In Oshlack v Richmond River Council,[27] McHugh J summarised what may be regarded as conduct disentitling a successful party from receiving a costs order as follows:

“‘Misconduct’ in this context means misconduct relating to the litigation: King & Co v Gillard & Co [1905] 2 Ch 7; Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 812, or the circumstances leading up to the litigation: Bostock v Ramsey Urban District Council [1900] 2 QB 616. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation: Jones v McKie [1964] 1 WLR 960; [1964] 2 All ER 842; Bostock [1900] 2 QB 616 at 622, 625, 627; unnecessarily protracts the proceedings: Forbes v Samuel [1913] 3 KB 706; succeeds on a point not argued before a lower court: Armstrong v Boulton [1990] VR 215 at 223; prosecutes the matter solely for the purpose of increasing the costs recoverable: Hobbs v Marlowe [1978] AC 16; or obtains relief which the unsuccessful party had already offered in settlement of the dispute: Jenkins v Hope [1896] 1 Ch 278.”

27. (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at [69].

53. Disentitling conduct does not necessarily need to amount to misconduct. It may simply be any conduct “calculated to occasion unnecessary expense”. [28]

    28. Moseley v AB (No 2) [2017] NSWSC 1812 at [71], referring to Lollis v Loulatzis (No 2) [2008] VSC 35 at [29]; Keddie v Foxall [1955] VLR 320 at 323 – 324.

54. In King & Co v Gillard & Co,[29] Vaughan Williams LJ held that, “[i]n order that [successful defendants] should be deprived of his costs, he must have done some wrongful act in the course of that transaction of which the plaintiff complains” (emphasis added). In Bostock v Ramsey Urban District Council, it was held that a trial judge had not erred in depriving successful defendants of their costs of resisting a malicious prosecution case because there were facts entitling him to conclude they had “by their conduct conduced to the plaintiff’s bringing the action, and induced in his mind the belief that they had acted maliciously and without reasonable and probable cause.”[30]

    29. At 11; see also Romer LJ at 12; Stirling LJ agreeing with both; Donald Campbell & Co Ltd v Pollak [1927] AC 732 was to like effect, Viscount Cave LC holding that a court may intervene were a judge “to refuse to give a party his costs on the ground of some misconduct wholly unconnected with the cause of action”.

    30. [1900] 2 QB 616 at 626 per Vaughan Williams LJ; see also at 622 per A L Smith LJ; at 627 per Romer LJ.

55. In my view, the fact that Cawarrah persevered with the fixed-term case notwithstanding the 7¾ years of trading at higher commission rates did not constitute disentitling conduct which should deprive it of its costs. As I have explained, this was but one issue agitated in the course of resolving the controversies concerning the commercial relationship between the parties. It cannot be said that it was “calculated” to occasion unnecessary expense, particularly in circumstances where Cellarit raised substantial issues at trial such as the 2009 Agreement.

Conclusion

56. I am not persuaded that there should be any departure from the general rule that the costs of the trial should follow the event.

Costs of the appeal

Cellarit’s submissions

57. Cellarit submits that it succeeded in the appeal and that the order for costs should reflect that success.

58. Even though Cawarrah were partially successful on appeal, Cellarit notes that that was the only by reason of their late cross-appeal. The net effect of the appeal outcome is that judgments against it totalling $325,708 will be reduced to approximately $135,000 (including interest as at 13 November 2017), a reduction of approximately 60%.

59. Cellarit argues that in all the circumstances the appropriate costs order is that Cawarrah pay 80% of its cost of the appeal.

Cawarrah’s submissions

60. Cawarrah submits that neither side can be regarded as having succeeded or failed in whole in this court. They submit the outcome of the appeal was mixed. Cellarit failed on the merits on ground 1, should not have appealed on ground 5, did not press ground 6 and would, on Leeming JA’s reasons, have lost on ground 2 (a ground the other members of the court concluded did not arise for determination). Its success was limited to grounds 3 and 4. Cawarrah submits that outcome should be reflected in an order that each party bear its own costs in this court.

61. In reply, Cellarit submits that Cawarrah’s proposal that they pay only the costs of grounds 3 and 4 would not be appropriate because it would not recognise its practical success in the appeal, being an approximately 60% reduction in the judgments entered at trial. Cellarit submits it would also require it to pay the costs of ground 2 of appeal, which this Court held did not need to be determined given the success of appeal grounds 3 and 4, and would require it to pay Cawarrah’s costs of the cross-appeal even though the cross-appeal was only partly successful. Further, Cellarit submits (as do Cawarrah) that an order of that sort would invite a difficult and costly process of assessment.

Consideration

62. Cellarit has succeeded on the appeal and that success constitutes the event for the purposes of the application of the general rule. Cawarrah succeeded on its belated costs appeal and that, in turn, entitles them to the costs of that exercise.

63. However, in my view, an order that each party pay its costs of the appeal would not reflect what I consider to be the responsibility of each party for the incurring of the costs. Prior to the oral argument on appeal, the “dominant” issue was the fixed-term contract case. Although Cellarit failed on ground 1, it succeeded on grounds 3 and 4 which were the subject of the bulk of the argument.

64. Neither the reversals nor the overcharging claim was formally in issue until Cawarrah exercised the leave given to it at the conclusion of the hearing to file a cross-appeal. That resulted in substantial post-hearing submissions. All of those matters should have occurred prior to the appeal. Experience warrants the inference that that increased the costs of the appeal given the fact counsel had to revisit the course of the trial in a manner which would otherwise have occurred in the ordinary course of preparation of the appeal submissions.

Conclusion

65. In all the circumstances, I am of the view that Cellarit’s submission that Cawarrah should pay 80% of its costs of the appeal is a fair outcome which reflects the responsibility of each party for the incurring of the costs in respect of both the appeal and the cross-appeal.

Monies in court

Background

66. By notice of motion filed on 21 November 2017, Cellarit sought a stay of the judgments the primary judge had entered. That motion was resolved, relevantly, by Cellarit undertaking to pay into court $45,000 as security for costs and Cawarrah undertaking not to take any steps by way of enforcement of the primary judge’s orders until after determination of the appeal or as otherwise permitted by an order of the court.

67. By notice of motion filed on 12 October 2018, Cawarrah seeks an order that the moneys in court be paid out to them by way of partial discharge of the verdict and judgment referred to in paragraphs 5 and 6 of the orders made on 28 September 2018.

68. Additionally, Cawarrah seeks a “stop order” pursuant to UCPR r 41.16(2)(b), which contemplates that, in circumstances where “a person having an interest in any funds in court is a debtor under a judgment or order of the court”, the court may make an order for payment out to a judgment creditor even if the funds were paid into court for a reason unconnected with that judgment. Cawarrah submits the court should proceed on the basis that an order for payment out can achieve an analogous result to that which would ensue if a garnishee order could be made in relation to the funds in court. [31]

    31. Cf Vernon v Perry [1962] VR 223.

Cellarit’s submissions

69. Cellarit contends that the $45,000 it paid into court was explicitly ordered to be paid as “security for costs”. Accordingly, it submits that, unless the court orders it pay Cawarrah’s costs of the appeal, the court should make an order that those sums (plus interest) should be paid to it.

70. Alternatively, Cellarit submits that if the court orders it to pay Cawarrah’s costs of the appeal, no order should be made for the disposition of the moneys paid into court. Rather, Cellarit contends the court should grant liberty for the parties to apply to the registrar when such costs order has been quantified (either by agreement or assessment).

Cawarrah’s submissions

71. Cawarrah submit that this court should exercise its broad costs discretion in such a way as to cause for the judgments it has given, in substitution for those below, to be discharged to the extent of the funds in Court.

72. Cawarrah rely on evidence which they submitted in support of the application for the stay, to the effect that, although Cellarit’s balance sheet showed positive equity, that equity may not be realisable because its largest asset is “software development” which has an unknown actual realisable value.

Reply submissions

73. Cellarit accepts that this court has broad discretion as to payment out of moneys paid into court, but submits that it would not be appropriate were the $45,000, paid pursuant to a written undertaking it gave to the court on 27 November 2017 that the monies be paid “as security for costs”, to be paid out for a different purpose.

74. Cellarit also submits it is relevant that its undertaking was given as part of arrangements made with the consent of Cawarrah and that the court should not therefore accede to an application which is contrary to that arrangement.

75. Finally, Cellarit submits that the affidavit evidence relied on by Cawarrah, in support of their argument that it may not be able to realise its assets, is too old to enable this court to make any safe inference as to its present financial position. Further, Cellarit submits the affidavit evidence also included evidence to the effect that Cawarrah are companies with nominal issued share capital. It contends this provides an additional reason for not making the order sought by Cawarrah, particularly if any costs order is made in favour of Cellarit.

Consideration: moneys in court

76. UCPR Pt 41 deals with funds in court. “Deposited funds” means money that has been deposited in a bank in accordance with UCPR r 41.2 and “funds in court” means money that has been paid into court: UCPR r 41.1.

76. Pursuant to UCPR r 41.2, within one day after money is paid into court, the registrar must deposit the money in the court’s bank account. Deposited funds may not be withdrawn or paid except by the authority of the rules or of a judgment or order: UCPR r 41.3. Money that is paid into court as security for costs does not bear interest: UCPR r 41.6(1). Subject to the UCPR, funds in court may not be paid out of court except to the party entitled or (on the party’s written authority or by order of the court) to the party’s solicitor: UCPR r 41.11.

77. If a party has paid money into court, the court may, in exercising its discretion as to costs, take into consideration both the fact and the amount of the payment: UCPR r 42.22.

78. Pursuant to UCPR r 41.16(2) if a person having an interest in any funds in court is a debtor under a judgment or order of the court, the court may, on that creditor’s application make an order prohibiting the transfer, sale, delivery out, payment or other dealing in respect of the whole or any part of the funds, or of any income derived from the funds, without notice to the applicant.

79. A party who pays money into court does not retain any legal or beneficial interest in the money. Rather, funds held by the court are not held as a trustee for any particular party, but as an exercise of the judicial function of the State. [32] The money is vested in the registrar of the court and is to be disbursed in accordance with the decision of the court. [33] Such rights as claimants to those funds may have are to the due administration of the funds in court, and a right to be heard about disposition of the funds, rather than a right of property. [34] The parties cannot create by their success in the litigation a property right to the funds. The management of the funds remains within the power of the court, subject to any pre-existing rights. [35]

    32. Re ANZ Banking Group Ltd; Funds in Court, [2014] NSWSC 1076 (ANZ) per Lindsay J at [9], citing NSW v The Commonwealth [No 3] (1932) 46 CLR 246 at 260 – 261, 262, 266 and 268.

    33. Pilmer and Others v HIH Casualty & General Insurance Ltd And Others (No 2) (2004) 90 SASR 465; (2004) 212 ALR 636 at [113] per Mullighan J.

    34. ANZ at [9], citing Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264; [1991] HCA 51 at 272 – 274; JKB Holdings Pty Limited v De La Vega [2013] NSWSC 501 (JKB Holdings) at [99] – [114].

    35. David Alan Thomson & Ors v Golden Destiny Investments Pty Limited & Ors (No 2) [2015] NSWSC 1929 at [126] per Sackar J.

80. In making decisions about the payment out, or retention, of funds in court the court engages in an exercise of prudential management of the funds in order to ensure their due administration and that the processes of the court are not abused. [36] It is relevant to have regard to the fact funds were paid into court to achieve a particular purpose. [37]

    36. ANZ at [10].

    37. JKB Holdings at [82].

81. Here, it is uncontroversial that the monies were paid into court as security for the costs of the appeal. On the court’s orders, Cellarit succeeded on appeal and is the beneficiary of an order that Cawarrah pay 80% of the costs of the appeal.

82. I agree with Leeming JA, that it is not appropriate that the monies paid in as security for the costs of the appeal should be paid to Cawarrah and Crusader “for some different purpose, namely, as a partial discharge of the hitherto unpaid judgments in favour of Cawarrah and Crusader.”

Orders

84. I propose the following orders:

1. Note that judgment will be entered for Cawarrah Holdings Pty Ltd in the sum of $36,631.16, plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017 upon the parties providing to the court the interest figure and therefore the total judgment amount.

2. Note that judgment will be entered for Crusader Pty Ltd (ACN 094 092 734) in the sum of $79,704.98 plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017 upon the parties providing to the court the interest figure and therefore the total judgment amount.

3. Direct the parties to provide the figures referred to in notes (1) and (2) to the court within seven days.

4. Order Cellarit Pty Ltd to pay Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734) their costs of the trial.

5. Order Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734) to pay 80% of Cellarit Pty Ltd’s costs of the appeal and cross-appeal incurred on or before 28 September 2018.

6. Dismiss Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734)’s motion filed on 12 October 2018.

7. Direct that the sum of $45,000, paid into court on 20 December 2017 pursuant to the order of the Registrar of the Court of Appeal dated 27 November 2017, be paid out to Cellarit Pty Ltd.

85. MACFARLAN JA: I agree with McColl JA.

86. LEEMING JA: On 28 September 2018, this Court made orders allowing Cellarit’s appeal and entering judgments for Cawarrah and Crusader, subject to their filing a notice of cross-appeal, in the amounts of $36,631.16 and $79,704.98 respectively, exclusive of pre-judgment interest and with effect from 13 November 2017. The cross-appeal has now been filed, so those judgments are now unconditional; no further order is required to achieve that result. This Court directed the parties to file further submissions on the question of costs, at first instance and on appeal, and for the disposition of $45,000 paid into Court by way of security for the respondents’ costs of the appeal. That has occurred, the last submission being supplied on 19 October 2018.

87. Cawarrah and Crusader obtained judgments in their favour. Costs follow the event unless there is some good reason for a contrary order. Cellarit says that (a) Cawarrah’s and Crusader’s success is a consequence of an amendment belatedly made, (b) Cawarrah and Crusader maintained a claim to 15% commission which was the primary claim made by them during the trial, and (c) their unreasonable pursuit of that claim so lacked in merit that a special order as to costs is warranted. I reject Cellarit’s first submission, for the reasons given by McColl JA under the heading “Whether late amendment principle applies”. The claim for 15% commission was but one of a number of claims made at the hearing, all of which were to the effect that Cellarit was wrongly withholding money it owed to Cawarrah and Crusader. I do not consider that the unsuccessful maintenance of a claim based on an unamended 15% entitlement to commission amounts to disentitling conduct to displace costs following the event. It is to be recalled that Cellarit has been found to have wrongly retained, for some years, more than $125,000 of its former client’s money. Cellarit should pay Cawarrah’s and Crusader’s costs at first instance.

88. Cellarit succeeded in this Court in obtaining judgments which were considerably less than those ordered by the District Court. It seeks an order that it be paid 80% of the costs of the appeal. Cawarrah and Crusader submit that each party should bear its own costs of the appeal. They rely on the fact that Cellarit failed on a numerical majority of the 6 grounds of appeal, and the success they achieved on the cross-appeal. I disagree with the reasoning underlying the submission. The primary grounds of the appeal are, and always have been, grounds 3 and 4. Cellarit succeeded on those grounds. Such material success as Cawarrah and Crusader enjoyed came about by reason of the belated cross-appeal, which led to submissions after the event. As both parties recognised, it is appropriate to apply a broad-brush approach rather than apportioning costs issue by issue. An order reflective of the substantial success of Cellarit on appeal is that proposed by it, namely, that Cawarrah and Crusader pay 80% of its costs of the appeal. That order does not extend to costs incurred after 28 September 2018.

89. On 27 November 2017, the Registrar noted Cellarit’s “undertaking to pay $45,000 into Court as security for costs within 28 days”. The amount of security is large, but it is not suggested that the costs in respect of which that $45,000 was promised to be given, and was given, as security, were costs other than the costs of Cawarrah and Cellarit in this Court. The result of the appeal is that Cellarit is not liable to pay any of Cawarrah’s and Crusader’s costs in this Court. I see no reason for those funds now to be paid to Cawarrah and Crusader for some different purpose, namely, as a partial discharge of the hitherto unpaid judgments in favour of Cawarrah and Crusader. The position would be different if Cawarrah and Crusader had obtained some form of security for the judgment debts which Cellarit was challenging on appeal, but that is not this case. I see no reason to convert Cawarrah and Crusader, which are unpaid judgment creditors, into secured creditors by reason of the fact that they obtained security for costs of an appeal in which they were substantially unsuccessful, absent a proper evidentiary foundation as would support post-judgment Mareva relief. Cawarrah and Crusader have filed an affidavit, but it goes no further than to say, on information and belief, that the judgments remain unpaid. While it is established that Cawarrah and Crusader are creditors of Cellarit and have standing to apply under UCPR r 41.16(2), more needs to be shown to warrant an order under that rule in circumstances where, as here, funds have been paid into Court consensually for the limited purpose of providing security for the respondents’ costs of the appeal.

90. Accordingly, I agree with orders 4 – 7 proposed by McColl JA. I would regard the parties as having an equal measure of success in relation to the applications made after judgment was delivered. The effect of limiting the costs order in favour of Cellarit to costs incurred on or before 28 September 2018 is that there will be no order as to the costs of the post-judgment applications, with the intent that the parties bear their own costs of those applications.

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Endnotes

Decision last updated: 12 November 2018